US Stocks Edge Higher, Reversing Early Losses

PeterA. McKay

Stocks edged higher Wednesday, reversing early losses despite a fresh round of sour earnings reports from major firms, in an echo of the previous session's moves.

The Dow Jones Industrial Average opened 75 points lower but recovered to post a 51-point gain in recent action, up 0.9%, at 8042.28 in midday trading. The S&P 500 was up 1%. The Nasdaq Composite Index was up 1.7%, near its highest closing level since November and up 6% for the year to date. Traders said the appetite for the generally smaller consumer and technology stocks that comprise the Nasdaq represents a bet on an economic recovery.

Investors' mood has been more upbeat since Treasury Secretary Timothy Geithner said on Tuesday that the vast majority of banks have sufficient capital. That eased some fears about the pending results of the government's stress tests of top lenders. Wednesday, Geithner said he would welcome strong banks repaying bailout funds to the government.

Despite the latest round of buying, traders and analysts say the market remains on shaky ground, with participants unwilling to hold positions for very long because of the lingering effects of the global recession.

"As I look at my handheld (trading device), all I'm seeing is small orders," said Alan Valdes, a trader for the brokerage Hilliard Lyons on the floor of the New York Stock Exchange. "That tells you there's still no conviction in this market."

Wall Street giant Morgan Stanley reported a first-quarter loss and said it plans to cut its dividend by 81% to five cents a share. Its shares declined 2%. Wells Fargo meanwhile reported that its net income jumped 52% in the first quarter thanks to its acquisition of troubled lender Wachovia. The bank also boosted its credit reserves by $1.3 billion in anticipation of higher losses from its consumer-credit and real-estate portfolios. Its shares rose about 6.4%.

"A lot of these banks seem really worried about their non-performing loans right now," said strategist Bill King, of M. Ramsey King Securities in Burr Ridge, Ill.

Results in other sectors were mostly grim on Wednesday, but the reaction from investors was measured. Aerospace giant Boeing reported sharply lower first-quarter earnings and cut its forecast for the remainder of the year, but its shares rose more than 3%. GlaxoSmithKline said that its first-quarter net fell 13% amid lower sales of prescription drugs. Its shares fell by about 5%. AT&T shares advanced 3% as its 9% fall in earnings was better than Wall Street had expected.

"The important thing with these earnings reports is that no one has been so atrociously bearish with their guidance to slow the market down," said Art Hogan, chief market analyst at Jefferies & Co. "We're clearly in a situation where the path of least resistance is higher."

In the tech sector, Yahoo rose 3% as the online search firm reported a 78% profit drop and said it would cut 5% of its work force. Sandisk climbed 15% after a narrower-than-forecast loss for the memory-chip maker. After the close of trade, Apple and eBay are due to report results. They both traded higher in recent action.

In recent sessions, stocks have dipped at the opening bell, inviting investors to rush in. That's a different tone to the steady intensification of selloffs or erratic swings that investors had come to expect from September through March.

"You're in a different environment," said Bruce Bittles, chief investment strategist at R.W. Baird, who believes that the low in early March was the bottom.

A recent Investors Intelligence poll showed just over one third of financial advisers still had a bearish outlook on stocks, compared with 43% who had turned bullish. To Bittles that means there's likely still plenty of cash sitting in money market accounts that may spark further rallies. That's more likely at this juncture than in the wake of prior market or economic collapses such as 1991 and 1987 because the yield on safe-haven investments such as Treasurys are so much lower, Bittles said.

"The first sign the market's have stabilized and heading higher is going to attract money on sidelines desperate for yield," he said.

The dollar weakened against major rivals. One euro cost $1.3028, up from $1.2939 late Tuesday. One dollar fetched 98.15 Japanese yen, down from 98.74 yen. Treasury prices slipped. The two-year note was down 1/32 to yield 0.961%. The 10-year note fell 12/32 to yield 2.947%.

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